We are seeing a solid deal pipeline

Written by Debojyoti Ghosh | Updated: Oct 22 2012, 09:03am hrs
Despite the key economies of US and Europe continuing to struggle for growth, HCL Technologies has recorded a 17-18% year-on-year revenue growth in these regions on a LTM (last 12 months) basis. Anil Chanana, chief financial officer, HCL Technologies, tells Debojyoti Ghosh that the company is extremely focused on these markets, as large long-term deals are up for renewals in these regions. Excerpts:

During the July-September period, Europe had a growth of 16.4% year-on-year, while Americas grew 13.5%. How do you see business growing in these regions

We are seeing very good growth in these regions. Both the geographies has grown significantly between 17-18% on a last twelve months (LTM) basis. We are extremely focused on these markets, because this is where the deal renewals are taking place. The deals from these regions are mostly long term. It is not just a project but a kind of relationship that you establish with the customers as they look for partners who can deliver capabilities. IT infrastructure is the backbone of any business. We are seeing very good traction across sectors in these regions except for telecom. We have opened centres in the overseas markets and are expanding our presence. We have also said that we will be creating 10,000 local jobs over a period of five years.

With the continuing slowdown in the mature markets, how do you see the deal pipeline going forward

We are seeing a very solid deal pipeline. The market in which HCL operates, we are seeing good growth. According to latest TPI study, the deals in the current quarter, which are maturing for renewals will be maximum.

Going forward in FY13 and 14, the market is also expected to pick up. We are focused on winning deals in these markets, because we have the right capabilities and skills required in the current environment.

HCL Technologies saw a 3.6% rise in net income for the quarter ended September. Will the company be able to maintain this current level What are the factors contributing to this improved performance

Of course we have been increasing our margins. This quarter we had a salary increase, which impacted our margins by 80 basis points. However, we were helped by the utilisation level particularly offshore, which went up by 180 basis points. Going forward we dont give any guidance, however, this particular quarter we had salary increase and for the remaining employees it is coming up in the current quarter, which will take away 100 basis points during the October-December period.

Depending upon our investments in terms of sales and marketing and the type of deals that we are chasing, it could vary. We said at the beginning of our fiscal year was that in FY12 our EBIT margin was 16.4%. Thats the minimum level of margin we will be working on and it is holding true. We do not believe that there is anything that has changed that we need to give any other guidance. We as a company are focused on profitable growth.

The volume growth this quarter was very strong at 4.5% against 3.4% in the previous quarter. The growth is coming from run the business (RTB) deals rather than change the business contracts, which remains subdued. Areas like enterprise application service, engineering and R&D are seeing lot of discretionary spend, where customers are focused on return on investments (ROI), short-term projects and small-value projects. But, the growth is mainly coming from the long-term annuity contracts that we are signing.

There seems to be some slowdown in the number of big account wins. Why is this so

We have seen good traction in the $20 and $30 million bracket, where we added about 4-5 clients. If you see our top 5 and top 10 customers, on a last twelve months (LTM) year-on-year basis we have grown almost by 18 and 13% respectively. As our customers keep on maturing, they will move up the value chain. We will keep on mining those customers as they will offer the opportunity. Plus the deals that we have signed recently will intend to move up over a period of time. They are all very high-quality customers. There is a lot of headroom for growth. During the July-September period we won 12 deals, which were across financial services, manufacturing and consumer services.

What are the reasons for the healthcare segment doing so well In Q2, the segment has recorded a 15% growth sequentially and 76% year-on-year for HCL.

Pharma is growing big time for us. We work in the areas of designing medical equipments, where we are seeing very good traction. Overall healthcare as a segment is growing for us. It is a phenomenal growth area for the company. This quarter we grew about 15%. Quarter-on-quarter it is difficult to predict growth but in the last twelve months we have seen good growth in this space. We are operating across various segments, but over a period of time this vertical has grown significantly. Even media, publishing and entertainment as a vertical has seen good growth.